Social common capital accumulation and fiscal sustainability in a wage-led growth economy

By Hiroshi Nishi, Kazuhiro Okuma

PKES Working Paper 2305

April 2023

We build a three-dimensional Kaleckian dynamic model, incorporating government-provided social common capital’s long-run stock effects and subsequent debt accumulation. We investigate how fiscal stance changes and demand and distributional impacts in a wage-led growth regime affect social common capital accumulation, economic growth, and stability. The Keynesian stability and Domar conditions are necessary for a long-run economically meaningful steady state, while a proactive fiscal stance promotes higher economic growth and a more sustainable economy. A higher wage share stabilises the economy by increasing the likelihood of satisfying the Domar condition, realising an equitable workers/capitalists income distribution, and establishing a resilient economy.

Keywords: Social common capital, fiscal sustainability, government debt, wage-led growth, Kaleckian model

JEL classification: E11 E12 E25 H54 O40